Assessing the Effects of the Statutory Reserve Requirement Ratio on the Profitability of Small and Medium Enterprises in Zambia: A Case Study of Selected SMEs in Munali Township

This study aimed to examine how Statutory Reserve Requirement Ratio (SRR) adjustments influence commercial bank lending interest rates and, in turn, affect the profitability of retail SMEs in Munali Constituency. The research objectives were firstly to assess how banks’ changes in lending interest rates due to SRR affects retail SMEs cost of borrowing, secondly to assess how banks’ changes in lending interest rates due to SRR affects retail SMEs revenue performance, and thirdly to analyze how banks’ changes in lending interest rates due to SRR affects retail SMEs competitive advantage. A quantitative research design is said to been applied using structured questionnaires which were administered to a purposive sample of 100 retail SMEs, and then the data were analyzed using descriptive statistics, OLS simple regression, and ANOVA. The findings showed that lending rate fluctuations used as a proxy for SRR influence did not have a statistically significant effect on either the perceived burden of borrowing costs (ANOVA, p = 0.450) or monthly revenue performance (OLS, p = 0.6393). These results specify that changes in lending interest rate alone do not fully account for the variations observed in the financial outcomes of retail SMEs. Still though evidence from the third objective revealed that high costs of borrowing materially weaken competitive positioning with 53% of the respondents reporting reduced ability to restock, diversify inventory, or introduce new products under elevated lending interest rate conditions. The study concludes that even though SRR driven lending interest rate changes do not significantly predict revenue performance, they do however restrict operational flexibility and long-term competitiveness. It recommends targeted credit interventions, improved SME financial management support, and more predictable monetary policy measures to reduce credit cost volatility and strengthen SME resilience.Keywords: small and medium enterprises (SMEs), statutory reserve requirement ratio (SRR), profitability, lending interest rates, competitive advantage.